Overview
No and low down payment loans require little or no cash from the buyer at the loans closing.
While Private Mortgage Insurance is generally required on any loan with less that 20% equity in the home, some mortgage programs like “Lender Paid MI” allow you to lower costly mortgage insurance.
Low down payment programs like FHA, VA and USDA can be a good idea for first time home buyers or those who could better use the money for other purposes.
The average down payment for a house 20 years ago was 20 percent. Today, it’s common for people to put as little as four percent down on their new home. Simply put, a no down payment mortgage is a mortgage for which you don’t put any money down on the purchase of your house. In today’s market, finding a no down payment mortgage may be extremely difficult unless you are a veteran and eligible for the VA Program – which almost never requires a down payment, but low down payment mortgages, such as the FHA Program, are very popular. The USDA Program is also popular and requires no down payment but is restricted to rural zoned areas.
No down payment mortgages for veterans and low down payment mortgage for non-veterans are now a safer bet for clients and lenders alike.
Low Down Payment Mortgage
A popular choice for homebuyers is the “low down payment mortgage.” The FHA loan program is a mortgage that only requires a 3.5% down payment.
Who Is a Good Candidate for a Low Money Down Mortgage Loan?
For some people, a low money down home loan may be the only way to buy a home. First-time home buyers may not have enough saved up for a 20 percent down payment, or might want to use the money they’ve saved for other uses like buying furniture or other necessities for their new home.
By not putting as much money toward a down payment, you can use it for other things such as paying off or consolidating debt. It makes good financial sense because mortgage interest is usually tax-deductible and rates are lower than most credit cards. You may also need that extra money to pay for your children’s education.
Avoid Paying High Private Mortgage Insurance with Lender Paid
There can be a disadvantage to a low down payment mortgage, which is paying private mortgage insurance, or PMI. Anyone who puts down less than 20 percent of the home’s value usually has to pay PMI, depending on the loan program they choose. But there are ways to lower this expense:
*While Private Mortgage Insurance is generally required on any loan with less that 20% equity in the home, some mortgage programs like Lender Paid MI allow you to lower costly mortgage insurance. By paying a portion of your PMI upfront, or in your interest rate, you can significantly lower your monthly PMI for as long as you decide to keep your loan. Just like how some people lower their mortgage rate with points, you can do the same with your PMI!
- Borrowers that meet certain criteria can eliminate PMI after they’ve reached a predetermined level of equity in their home. This amount varies depending on the type of loan, but it is commonly between 20 percent to 22 percent. Lenders are required by law to cancel PMI when the homeowner has reached 22 percent equity in their home if the loan was closed after July 29, 1999. However, once 20 percent equity is reached, the homeowner may make a request to their mortgage lender to cancel PMI. Otherwise, the homeowner may end up paying for PMI during the time it takes to reach 22 percent equity.
There are other ways to get a 20 percent down payment you may not have thought of. For instance, some loans allow for down payments to come from sources like monetary gifts from relatives or employers. Other ways of coming up with a down payment might include drawing from a trust fund or a retirement account, or using money you inherited. However, be aware that some types of those accounts may incur fees or penalties for making withdrawals.
ABOUT TED CANTO
Ted is an experienced Mortgage Advisor for the last 13+ years and is also known for his mortgage commentary and internet workshops within the real estate community. Also known as "The Mobile Mortgage Pro", Ted has honed the power of the smart phone, laptop, tablet computing, text, email and social media to ensure that he is always accessible to his clients' “wherever, whenever” to meet their needs. Ted has helped thousands of families finance their new home or refinance their current home in the Arizona and California market. Call, text, or email him to discuss your home financing @ 480.650.8602 or ted@tedcanto.com
Ted Canto
